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Cash transfer of subsidy could save Rs 60,000 crore: Study -Surojit Gupta
-The Times of India


Direct transfer of benefits in cash to targeted beneficiaries of food and fertilizer subsidies could save an estimated Rs 60,000 cr and help trim the fiscal deficit which, in turn, may calm stubbornly high food inflation, a study by a government wing has shown.

The study showed that policies to rein in food inflation would require winding down of the fiscal deficit, which has gone above 8% of GDP for Centre and states combined and way beyond the guidelines laid out in FRBM (Fiscal Responsibility and Budget Management) Act, 2003.

"CACP's calculations show that direct transfer of food and fertilizer subsidies in cash to targeted beneficiaries has the potential to save almost Rs 60,000 crore, without any major adverse impact on the beneficiaries," the study authored by Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices (CACP), and Shweta Saini said. The CACP advises the government on price policy for major farm commodities to help maintain the interest of producers and consumers.

"This would require political courage as well as innovative ways to implement direct cash transfers to targeted beneficiaries through Aadhaar," the study said.

The project was undertaken to identify the causes for high food inflation and suggest possible remedies.

The report identified three factors which have contributed to sticky food inflation. It included the ballooning fiscal deficit, rising farm wages and transmission of the impact of global food inflation. The study said the three factors accounted for 98% of the variations in Indian food inflation over the period 1995-96 to December 2012.

Among key suggestions for tackling food inflation, the study recommended mechanization of farms to raise labour productivity, and dovetailing of MGNREGA with farm operations through panchayats. This, according to the authors, could be a way to contain 'cost-push' inflationary pressure.

"And, in order to ensure that small farms are not over-capitalized, raising their costs of production, land lease markets should be freed to let economically viable size of the holdings to emerge. Also, custom hiring of capital farm machinery will have to be developed to contain capital costs," the report said.

It said global food inflation seeping through domestic prices could not be wished away as India was increasingly integrating with the world economy and recommended stable, predictable, and open trade policies with moderate duties of 5 to 10%. There should be a provision of special safeguards to protect from sudden spikes and troughs and this may also help to keep food inflation within the comfort zone of less than 5% per annum.

The study also called for boosting supply response in agriculture and save on large wastages in the supply chains. It said this would require large investments in the supply chains, from agri-R&D to investments in irrigation, logistics (warehousing and movement), processing and organized retailing.

"Private sector investments can be leveraged through open and more investor friendly policies on one hand, and farmer producer organizations on the other, with the two reinforcing each other for a take-off in agriculture," it said.

The report said taming food inflation and bringing it down to comfortable levels, below 5%, needed to be accorded high priority.

Food inflation in India has been a major challenge to policy makers, more so during recent years when it has averaged 10% during 2008-09 to December 2012, the study said, adding that an average household still spends almost half of its expenditure on food.

"These policy steps, if taken in a synchronized manner, will go a long way in not only taming food inflation in India but also lifting agri growth and reducing rural poverty much faster than has been the case so far," the study said.